January 12, 2015 in Smart Money

Road to riches starts with saving

More than 50 percent of Americans are having difficulty maintaining a cash reserve to cover unexpected expenses such as a car repair or medical crisis, leading to a paycheck-to-paycheck cycle that destroys any chances of building wealth.

The first Money Pulse poll conducted by Bankrate reveals that more than half of respondents admit they don’t have enough money set aside to cover emergency expenses.

Wealth building blocks

But a solid savings account is the foundation on which to build wealth, according to Brent Fykes, managing director of Atlantic Trust Private Wealth Management. So it should be your first financial priority this year.

“Without accumulating savings, you can’t make investments,” he says, adding that investing — whether it be in a home, business, retirement plan, stocks and bonds or a combination of all of them — is key to making your wealth work for you.

“If you don’t invest in something, how do you become wealthy? The wealthy, generally speaking, became so by building businesses, buying and selling real estate and growing stock and bond portfolios,” Fykes says. “The wealthy didn’t get that way by spending all the money they earned or received.”

Emergency coverage first

Fykes recommends funding an emergency account with enough savings to cover living expenses for three to six months. “It acts somewhat like a personal insurance policy against unexpected expenses,” he says. After that, you can begin to deploy extra savings into investments.

Keep in mind, however, that as your lifestyle changes, so should the balance of savings in order to ensure you maintain the appropriate level for emergencies. “Savings is absolutely the priority over investing,” he says.

Where to find extra cash

For the upcoming year, Fykes offers several tips on how to jump-start a wealth-building program by maximizing savings:

Finding opportunities to save a little extra are important in initiating a savings program, but the end result comes down to effective budgeting that also includes some belt-tightening, says Fykes. “The ongoing management, or reduction, of expenses — and then saving the difference — is essential to a consistent wealth-building plan.”

Read more about how the rich invest, save and spend and learn the secrets to building wealth from the financial experts.

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